After record high, UK's 'treasure island' status is set to end
|Nick Gibbs is UK Correspondent at Automotive News Europe.|
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After March new-car registrations hit an all-time high in the UK, analysts predict an end to the market's long run as a "treasure island" for profits.
For the past five years, sales have boomed in Europe's No. 2 market after Germany, helped by easy credit that encouraged to automakers to import surplus production from continental Europe. As many of those sales were premium models and better-equipped trim levels of mainstream cars, analysts Exane BNP Paribas coined the "treasure island" tag.
But the market has peaked and sales are set to tumble, industry watchers say.
One reason why registrations rose 8.4 percent last month - making it the best March since its records began, according to industry association SMMT - was that buyers brought forward car purchases to avoid changes in vehicle excise duty that came into force on April 1. This writers' parents replaced both their cars in March to avoid it, for example.
Along with the extra tax, new-car buyers will also face rising prices as automakers pass on the currency exchange penalty they took when the pound sharply dropped against the euro following the UK narrowly voted to quit the EU.
The worst of the damage had been hedged by automakers until now. Ford says it will have to raise prices again. Price rises such as Ford's will see sales start to fall from this quarter, Exane wrote in a report published earlier this week.
A third pressure on new sales is the drop in residual prices. Exane said diesel values have been hardest hit as the British government seeks ways to reduce tailpipe pollution from diesel vehicles, including applying 'toxin taxes.' The fall in used values then increases the price of new cars, which are mostly bought on finance deals that take the residual price into account. Diesels are popular with the UK's fleet market, which buy half of all new cars in the UK. Fleet sales could drop by up to 20 percent, Exane predicts. Retail sales have already softened, it notes.
The result is less profit for automakers and therefore less focus on the UK as a market, which brings fewer discounts for buyers.
"The weaker pound means it's less attractive to bring surplus production to the UK," Andy Barratt, managing director of Ford of Britain, told me. "That will now find a home elsewhere and that manufacturer push element comes out of the market."
The SMMT predicts the market will fall 5 percent this year to 2.56 million, then drop to 2.48 million in 2018.
Automakers will have to look for treasure elsewhere in Europe.
You can reach Nick Gibbs at email@example.com.